Question

A software package created by Navarro & Associates can be used for analyzing and designing three-sided guyed towers and three- and four-sided self-supporting towers. A single- user license will cost $4000 per year. A site license has a one-time cost of $15,000. A structural engineering consulting company is trying to decide between the two alternatives: first, to buy one single-user license now and one each year for the next 4 years (which will provide 5 years of service), or second, to buy a site license now. Determine which strategy should be adopted at an interest rate of 12% per year for a 5-year planning period using present worth evaluation.

Answer 1

To determine which strategy to adopt, we compare the present worth of the two alternatives. At an interest rate of 12% per year, the present worth of the single-user license is approximately $14,835, while the present worth of the site license is $15,000. The site license is the more cost-effective option.

Step-by-step explanation:

To determine which strategy to adopt, we need to compare the present worth of the two alternatives. The first alternative is to buy one single-user license now for $4000 per year for 4 years, providing 5 years of service. The second alternative is to buy a site license now for $15000.

At an interest rate of 12% per year, we can calculate the present worth of each alternative by discounting the future cash flows to the present. The present worth of the first alternative is $4000 + ($4000/1.12) + ($4000/1.12-2) + ($4000/1.12-3) + ($4000/1.12-4), which is approximately $14,835. The present worth of the second alternative is simply the initial cost of $15,000.

Based on the present worth evaluation, the second strategy of buying a site license now is more cost-effective, as it has a lower present worth compared to the first strategy. Therefore, I would suggest opting for the site license.

Answer 2

432.12

Step-by-step explanation: